1 In 1999 includes real transfers from the Y2K Contingent Emergency Fund of $3.913 million in Program Administration, $794,000 in FFEL, and $591,000 in the HEA Section 458.

2 Includes small Federal Credit accounts and S&E activities in program accounts. Excludes National Institute for Literacy grants.

3 Actual FTE usage in 1999; maximum target for 2000 and 2001.

The Department?s 2001 budget request for Salaries and Expenses (S&E) will pay the costs of the staff, overhead, contracts, and other activities needed to administer and monitor about 170 educational assistance programs and provide over $50 billion in grants and loans each year to nearly 9 million postsecondary students.

The Department is requesting $584 million for its discretionary S&E budget in 2001, an increase of $38.4 million over the 2000 level. Most of the increase is for the 2000 and 2001 pay raises announced by President Clinton. Even with the increase, the total administrative budget is less than two percent of the Department?s total discretionary budget.

Mandatory Federal administrative costsprimarily associated with the postsecondary student loan programswill increase by $45 million. The mandatory increase is primarily required to originate, service, and collect student loans. The funding has contributed to the decline in the default rate, improvements in collections, and better services to students and families seeking aid for college expenses.

Over 50 percent of the Department?s S&E budget is funded under a permanent mandatory appropriation that supports the operations of the student loan programs and other student financial aid management. The largest single expense under this appropriation is the cost of private sector contractors who originate and service Direct Student Loans. The permanent mandatory account also supports all student aid programs through a variety of other contracts, such as the National Student Loan Data System, as well as payments to 36 non-Federal guaranty agencies that help administer the Federal Family Education Loan (FFEL) program. Both Direct Loan servicing costs and FFEL guaranty agency payments fluctuate with loan volume. Because student loan volume grew significantly in the last five years, administrative costs for servicing and collection will continue to increase.

With a 2000 target of 4,717 FTE, staffing levels are nearly 40 percent below the 1980 level of 7,528 FTE when the Department was created, and 142 FTE below the 1992 level. The Department?s reinvention and restructuring efforts over the last few yearscombined with technology and financial management systems improvements, attrition, and retirementshave resulted in a Department that works better, costs less, and operates efficiently with a reduced staff level.

The 2001 staffing request for the Department is 4,749 FTE, an increase of 32 FTE from the 2000 level of 4,717 FTE. The increase reflects the new programs and the additional responsibilities placed on the Department because of the high priority given to education by President Clinton. In addition to the overall increase, the Department plans to continue to shift current staff to high priority areas from activities where they are no longer needed due to streamlining efforts or the consolidation or elimination of programs.

The Department has maintained operations in spite of reduced staffing levels in part by relying heavily on automation and private contractors to handle such functions as awarding grants, processing student aid applications, and providing grants and loans to some 9 million college students. Already the smallest of the 14 Cabinet agencies, the Department minimizes administrative tasks and privatizes functions that can be handled more efficiently by outside contractors. A prime illustration is the use of contracts to operate the Direct Student Loan program.

Administrative support for most programs and offices in the Department is provided by the Program Administration account. The 2001 request for this account is $413.2 million, an increase of $30.3 million over 2000, including $238.9 million for staff pay and benefits and $174.3 million for non-pay costs. Staffing paid for from this account would increase from 2,731 FTE in 2000 to 2,761 FTE in 2001. The request for salaries and benefits, which is 58 percent of the total, reflects average employee pay raises of about 4.8 percent in January 2000 and another 3.7 percent estimated for 2001, covering both national and locality pay raises. The account also finances rent, travel, and computer support for the staff and some contract costs of the student aid programs.

A key focus of the Salaries and Expenses funding is to increase the use of information technology to improve the efficiency and effectiveness of the Department?s operations. Activities being requested include:

Internet and Intranet Development. A $1.3 million request would support the continued expansion and operation of the Department?s internet and intranet sites, an increase of more than $300,000 from the 2000 level. These sites provide a critical communications link to both the Department?s internal and external customers, including grantees, educational institutions, government agencies, and contractors.

Video Teleconferencing. Following pilot-testing of a video teleconferencing system in fiscal year 2000, the 2001 budget includes $1.8 million for full-scale development and installation of video teleconferencing suites in all 12 major Department buildings.

Data Coordination Committee. The Data Coordination Committee assists the Chief Information Officer in promoting the efficient collection and use of education information among Federal agencies and throughout the education community. A $1.9 million request in 2001 would support the development of a Department-wide Education Integrated Information Exchange and Management project, including data dictionary and assessment and development, business and data process improvement, and overall project development and implementation.

Information Technology Architecture. The Department is developing an Information Technology (IT) Architecture that will serve as a blueprint for information technology development and management and govern the IT investment decisions. Development of the IT Architecture is under way in fiscal year 2000, and the 2001 request includes $1.5 million to complete and implement the plan.

Network Operations and Software Licensing. A total of $26 million is requested for network maintenance, operations, and improvements, an increase of $2.3 million from 2000. These funds pay for end-user support as well as maintenance and operations for the local area network system, which includes headquarters and all of the regional offices.

The Department will continue to work in fiscal year 2000 to improve financial management of its programs. The following initiatives are designed to provide accurate and timely financial data and increase financial integrity.

EDCAPS (Education Central Automated Processing System). The budget includes $12.9 million for the maintenance and continuing operations of the EDCAPS system, a decrease of $300,000 from the 2000 level. The request includes funds for contractor support for operations of the system as well as external and internal interfaces to the system.

General Ledger Improvements. This project, begun in fiscal year 2000 with $2.4 million for software licensing and contractor support, will replace the Financial Management System Software component of EDCAPS. The 2001 budget includes $4.8 million for completion of the installation and conversion to the new system.

Electronic Travel System. A $966,000 request will permit the Department to implement a new travel system that will provide integrated accounting and budgeting support for business travel.

The major focus of the Department's S&E budget continues to be improving management of student financial aid and other postsecondary education programs as well as the successful implementation of Direct Loans. The importance of these management responsibilities is reflected in the restructuring that created a performance-based organization (PBO) for student aid in late 1998.

Excluding $170 million in payments for services to FFEL guaranty agencies, student aid administration spending will total $730 million in 2001, or more than 60 percent of the Department?s total administrative budget. About 82 percent of this $730 million reflects mandatory funding authorized under Section 458 of the Higher Education Act; the remaining funds are provided under the discretionary Program Administration account and smaller accounts supporting the administration of the FFEL, College Housing and Academic Facilities Loans, and HBCU Capital Financing programs.

Major activities supported with these funds include:

Direct Loans. Origination and servicing costs for Direct Loans account for over 40 percent of Department administrative spending on postsecondary education. The Direct Loan program grew from 7 percent of total loan volume in academic year 1994-95 to 33 percent in 1998-99, and is expected to remain at that level for the next few years. As large numbers of loans have begun to enter repayment, servicing costs will continue to increase as Department contractors distribute increasing numbers of statements and coupon books, respond to more requests for account information, and collect and process additional payments. Costs for this contract will increase by $41.9 million over the 2000 level, as the number of Direct Loan borrowers on the servicing system grows to more than 6 million.

Student Aid Delivery. The Department expects to provide nearly $54 billion in grants and loans to almost 9 million students in 2001. To award this aid, the Department expects to spend $65.0 million on contracts with a number of private firms to process paper and electronic applications, determine student eligibility, and maintain information management systems required to transfer data and funds between the Department and the more than 6,000 schools participating in the Federal student aid programs.

National Student Loan Data System. The budget includes $9.5 million in 2001 for the National Student Loan Data System (NSLDS), a national database of loan-level account information. The system is used to screen financial aid applications to prevent loans to applicants who have defaulted on their student loans or who have reached maximum award levels, and to compute institutional default rates. This system has already prevented more than $1 billion in grants and loans from being made to ineligible students.

System Modernization. In order to streamline and modernize the multi-million dollar computer systems that support the delivery and management of Federal student financial aid, the Department is requesting $58.7 million in 2001, a decrease of $2.7 million from 2000. In consultation with its external partners, the Department developed a modernization blueprint to guide the re-engineering of OSFA systems. In August 1999, OSFA awarded a contract to Anderson Consulting to help implement this blueprint.

Ensuring Program Integrity. The Department dedicates almost 400 FTE to ensuring that institutions participating in Federal student aid programsincluding schools, accrediting associations, lenders, private service contractors, and guaranty agenciesmeet statutory eligibility requirements and operate in accordance with all statutory and regulatory guidelines. In addition, an increasing number of problem schools are being removed from the student aid programs. Since 1995, over 1,700 schools have been removed from the Title IV programs.

Default Rates. Schools are excluded from participation in the student aid programs if their cohort default rate exceeds 25 percent. For loans entering repayment during fiscal year 1997, 8.8 percent had defaulted by the end of fiscal year 1998. This rate is down from 9.6 percent the previous year and from 22.4 percent for loans that entered repayment in 1990.

Increasing Debt Collection. Collections on defaulted loans by the Federal Government and guaranty agencies more than tripled from $1 billion in 1992 to over $3.0 billion in 1999.

Improving Customer Service. The Department is also committed to increasing access to information on Federal student aid, both through printed materials such as the Student Guide (also available on the World Wide Web at www.ed.gov) and through enhanced capacity to respond to specific requests. Spending on the Department?s contract to maintain a toll-free information line (1-800-4FED-AID) and to respond to written requests for information will total $15.2 million in 2001, the same as the previous year.

Development of a Strategic Plan for 1998?2002 in response to the Government Performance and Results Act (GPRA). The Strategic Plan, submitted to Congress on September 30, 1997, was rated as second among Federal agencies by the House leadership in terms of overall quality and responsiveness to GPRA. The Department?s Annual Plan, which updates the Strategic Plan by presenting indicators of performance, received the third highest grade in the government.

Improvement and simplification of customer access to information by establishment of the toll-free number 1-800-USA-LEARN, which provides customers with "one-stop-shopping" about Department programs and initiatives and a similar number, 1-800-4FEDAID, which provides information on postsecondary college financial aid.

Completion of Y2K compliance activities for all 14 mission?critical and 161 noncritical systems to prevent potentially serious malfunctions in systems that handle student records, payroll and employee benefits, purchasing and class scheduling. In addition to internal activities, the Department implemented a broad outreach campaign to assist the education community in achieving Year 2000 compliance, including the testing of data exchanges between Department systems and external customers. The Department received an "A" on the Congressional "report card" for its Y2K readiness and has experienced no Y2K problems in the first month of the new millennium.

Development of ed.gov and related Web sites, which provide large numbers of customers high quality and timely information and the ability to communicate electronically with the Department. The Department?s web site now offers about 1,600 publications and more than 30,000 files. In October 1999 the Department?s web site had over 1.3 million unique visitors and received 11 million page views, roughly twice as many as the previous year.

Reinvention of the publications process by implementation of "ED Pubs," which provides customers a "one-stop-shopping" approach to the dissemination of materials produced by the Department. The initiative has enabled the Department to distribute materials in the most cost-effective manner for the government while meeting customer service requirements for delivery time. ED Pubs has been given top ratings by Government Executive Magazine and the recent University of Michigan Customer Service Survey, and the Department estimates that ED PUBS saves an estimated $53,000 a month on postage.

The Department?s Office for Civil Rights (OCR) investigates discrimination complaints, conducts compliance reviews, monitors corrective action plans, and provides technical assistance on civil rights issues. The 2001 request for OCR is $76 million, an increase of $4.8 million over the 2000 level. About $55.7 million of the OCR budget is for staff pay and benefits for its 724 FTE; the remaining $20.3 million covers overhead costs as well as computer equipment, data analysis and reporting activities, travel, staff training, and other contractual services.

About 88 percent of OCR staff are assigned to 12 enforcement offices in four regional enforcement divisions. OCR plans to manage its increasing workload in 2001 by reliance on the redesigned complaint resolution process and Case Resolution Teams. OCR also will continue enforcement activities such as partnerships with State and local education agencies, empowerment of parents and educators through clarification and guidance in key civil rights areas, and increased staff training on civil rights issues. Although over half of the complaints filed with OCR allege discrimination on the basis of disability, OCR continues to address all educational equity issues.

The Office of the Inspector General (OIG) conducts audits and investigations of the Department?s programs and activities to help ensure accountability for taxpayer-provided funds and to identify management improvements. In fiscal year 1999, the Department recovered over $7 million as a result of OIG?s audit findings and investigations.

The 2001 request for the OIG is $36.5 million, and increase of $2.5 million over 2000. Nearly 60 percent of the budget increase is for built-in costs, including pay adjustments and Department overhead costs.

Three-quarters of OIG staff are assigned to 8 regional and 11 field offices (6 of which are flexiplace locations), where they investigate allegations of fraud on the part of recipients of program funds and conduct audits of the Department?s programs and operations. In 2001, OIG will focus a majority of its program and operations improvement efforts on Student Financial Assistance programs, Elementary and Secondary Education Act programs, Department systems audits and the audit of the Department?s financial statements. Most compliance activities will continue to focus on the Student Financial Assistance programs.

Appropriations acts in recent years have provided funds for Department of Education programs on an "advance" funded basis. For example, the 2000 appropriation provided $7.941 billion for Title I Grants to Local Educational Agencies for school year 2000-2001. Of this total, $1.737 billion is available on July 1, 2000 for grant obligation by the Department. The remaining $6.205 billion becomes available for grant obligation on October 1, 2000. Because schools receiving Title I funds spread their use of the grant money throughout the school year, the timing for the availability of Federal grants should not affect schools. The Department merely issues two grants for each school year, and the only effect of the "advance" funding is to delay "budget authority" from one fiscal year to the next. As long as a similar amount is appropriated in subsequent years, there is no impact on recipients.

Congress extended the practice of advance funding to several other programs in the fiscal year 2000 appropriation, and the President?s 2001 budget request assumes those programs will continue to be funded on a advance basis.